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SEC takes aim at confidentiality provisions in separation agreements.

The SEC has been warning that it is concerned about employee separation agreements that contain confidentiality provisions that could inhibit whistleblowers from communicating with the SEC. On April 1, the SEC announced its first enforcement action against a company for using what it believed to be improperly restrictive language in such a confidentiality agreement. Press Release, SEC,SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements, Release 2015-54(Apr. 1, 2015); In re KBR, Inc., Exchange Act Release No. 74,619 (Apr. 1, 2015) (Order Instituting Cease-And-Desist Proceedings). The SEC charged Houston-based global technology and engineering firm KBR, Inc. with violating whistleblower protection Rule 21F-17 promulgated under the Dodd-Frank Act, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC. KBR had required witnesses in certain internal investigation interviews to sign confidentiality statements with language warning that they could face discipline, including possible termination, if they discussed the matters with outside parties without the prior approval of KBR’s legal department. Without admitting any violation, KBR agreed to pay a $130,000 civil penalty to settle the SEC’s charges. The company also voluntarily amended its confidentiality statement by adding language explicitly stating that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation. The SEC recognized that there are no apparent instances in which KBR actually prevented employees from communicating with the SEC about securities law violations. But the SEC found that the potential chilling effect of the language on whistleblowers’ willingness to report illegal conduct to the SEC was all that was necessary for the company’s conduct to violate SEC Rule 21F-17. In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower, warned that “other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

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